Wednesday, December 13, 2006

Booming Saudi Arms Buying Leads Middle East Arms Market

Forecast Intl.NEWTOWN: Awash in a sea of petrodollars, Saudi Arabia is expected to spend tens of billions of dollars in the coming years revamping its military forces, according Forecast International’s most recent Middle East defense market analysis. “The Saudis are essentially engaged in a whole-scale overhaul of the structure of the regular armed forces, and a major upgrade of the paramilitary National Guard, which is the prime internal security force,” said Tom Baranauskas, Forecast International’s Middle East analyst. From best initial estimates, the Saudis will be spending about $40 billion on these procurements, but the total could go as high as $60 billion.

Signed or pending big ticket programs include Typhoon fighters for the Air Force, helicopters for all of the services, armored vehicles for the National Guard, new frigates for the Navy, and a multibillion-dollar security barrier for the entire length of the border. Notably, the Saudis are spreading the wealth around, with British, French and U.S. suppliers looking to benefit the most from the arms-buying spree. The intent is to prevent the country from becoming dependent on any one supplying nation.

The internal security sector will claim a healthy portion of the Saudi procurements, with orders to modernize the National Guard expected to reach some $5.8 billion. This reinforces a regional trend that began several years ago.

The shift in focus toward security spending reflects growing concerns over the region’s burgeoning instability, ranging from the civil war in Iraq to the rise of terrorist attacks in Saudi Arabia, the persistent violence between Israel and the Palestinians, and the growing military power of Iran.

The threat from Iran could spark yet another war in the region, given Iran’s development of long-range missiles capable of reaching Israel, and Israel’s threat to stage a pre-emptive strike should Iran persist in developing nuclear warheads. It is telling that Persian Gulf nations had contemplated defense spending cutbacks following Saddam Hussein’s ouster in 2003, but have since reconsidered.

Given the various security threats, the region is expected to continue to constitute a high-value defense market. Forecast International has raised its forecast figures for this market significantly from last year’s. Its projections show regional military spending topping out at $86.5 billion in 2008 and then easing slightly to about $82.9 billion by 2011. Not surprisingly, Saudi defense spending constitutes a sizable portion of the increase in forecast spending.

However, Baranauskas said that “much of the arms buying in the region occurs ‘off-the-books,’ and there is no way to determine how much of the defense spending falls into this category. The region’s governments are notorious for their lack of transparency, and in many cases official numbers should be regarded with skepticism.”